Free Essay

Financial Plan

In: Business and Management

Submitted By hywjoyce
Words 499
Pages 2
Week8

You're considering purchasing a house using an 80% mortgage (for your own use). ➢ What are the issues you need to consider (e.g. Price, locations, costs etc.)? ➢ Weigh up the benefits and the downsides of purchasing a house. ➢ Decide whether you would purchase the house and give reasons why. ➢ If not, what alternatives do you have?
The following issues would affect my decision: ➢ Price The price level of the house would be first considered since the price should be within my affordability. This would be decided by my current income and expense. ➢ Location Location is another important factor that I would consider. It would be quite inconvenient if it is too far away from my working place and I do not want to waste too much time on transport every day. Also, I would prefer houses that are close to facilities such as shopping Centre, hospital and Gym. Additionally, the house should be located in a safe suburb. ➢ Costs The costs of the house includes my own money and the 80% mortgage. By making a mortgage, I would need to pay interest to the bank accordingly. Therefore different mortgage plans should be compared among banks so that I can choose the one that suits me most. Another cost that should be considered is tax expense. This includes stamp duty, GST and capital tax.
Buying a house has the following benefits: ➢ Cut cost of renting No cost would be spent on renting since I own my own house. ➢ Growth of house The value of the house may increase in time. ➢ Tax benefit Interest payment on mortgage would be tax deductible ➢ Capital Gain Tax main residence exemption On purchase, if the taxpayer moves in it as soon as practicable it will then be treated as the main residence form the time the dwelling was required. Main residence is usually exempted from CGT events.
The downsides would be as following: ➢ Less cash on hand The quality of life may decrease since I would have less cash to my more expensive stuff. ➢ Tax expense Property taxes would need to be paid. ➢ Less mobility Once the house is bought, I would tend to just stay where the house is. This may restrict my career development.

Decision
I decide to purchase the house since house price has been increasing in recent years. Therefore the value of the asset would be increasing. Also, this means that the house would be less affordable in the future due to increasing price. In addition, tax benefit would be gained from interest payment of mortgage and exemption from CGT events. Additionally, even though I may not be able to live in the house due to work, it can still be rent. If it is rent out, it can still retain its residency status, but only for a maximum of six years. Therefore, it can still be exempted from CGT events. Further, I would have a sense of stability if I have my home instead of renting from others.

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